If you are still relying on FICO score to determine the creditworthiness of an individual, then you might soon be outpaced by your competitors. Today, tech savvy lenders are using data from disparate sources to understand an individual’s risk profile. For instance, data drawn from LinkedIn or social media, can provide lenders with a more accurate picture of borrowers, and can be far more revealing than what the borrower’s financial profile reveals. This methodology, more commonly known as lending analytics, can be combined with Fico score, to make lending more merit-based as well as accurate and precise.

Lending analytics is a process that includes applying mathematical techniques and processes to a wide variety of historical data to spot the characteristics of variation and predict possible outcomes. Smart lenders have now started relying more on lending analytics to manage the risk of borrower default. Armed with lending analytics, it is now possible to do away with a one-size-fit-all approach to lending and, instead develop a policy at a very granular level with sharp focus on where the real risk of loss is present. For instance, lending analytics can help credit unions to set limits on indirect loans while, at the same time, justify a higher overall limit than industry averages, because they can focus on both credit levels as well as loan-to-value.

Here are some more advantages that lending analytics can provide to your business:

Streamline Operations:

Lending analytics can help lenders to cut down on operational costs, as the loan application life cycle must go through fewer individuals performing fewer steps.

Have a Definite Understanding of Marketing Campaigns:

Lending analytics can be particularly helpful in identifying lending risk prior to campaign launches. It can help lenders to understand:

  • How your lending portfolio might get impacted when you target a new geographic area.
  • Demographics of the targeted population where you plan to make new forays.
  • Target specific promotions to the borrowers most likely to use them.
  • Target borrowers more responsive to marketing campaigns.

Analyze Competition:

Lending analytics can help mortgage lenders have precise answers to questions like:

  • Who your peers are in each market
  • Where your peers are lending and to whom
  • How to benchmark against peers’ in every geography

Evaluate New Business Opportunities:

Publicly available data can be leveraged to compare lending activity in merger or acquisition scenarios. Further, it can help in formulating and assessing branch strategies.

Oversee Third-Party Lending Channels:

Lenders can use lending analytics to proactively manage mortgage brokers and minimize risks involved in third party relationships. For instance, knowing which broker is an outlier can help lenders educate the broker on what is acceptable.

The list of potential uses of lending analytics is long. Once in place, it can have many additional uses, delivering valuable insights into mortgage business decision making.